2021 Annual Report

The following table presents a summary of nonperforming assets, by category, at the dates indicated:

December 31,

(dollars in thousands) 2017 Total Nonaccrual Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 722 $ 775 $ 461 $ 581 $ 1,139 Total Nonperforming Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 722 $ 775 $ 461 $ 581 $ 1,139 Plus: Foreclosed Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 581 Total Nonperforming Assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 722 $ 775 $ 461 $ 581 $ 1,720 Total Restructured Accruing Loans . . . . . . . . . . . . . . . . . . . . . . . . . 1,304 265 276 181 2,178 Total Nonperforming Assets and Restructured Accruing Loans . . $ 2,026 $ 1,040 $ 737 $ 762 $ 3,898 Nonaccrual Loans to Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03 % 0.03 % 0.02 % 0.03 % 0.08 % Nonperforming Loans to Total Loans . . . . . . . . . . . . . . . . . . . . . . . 0.03 0.03 0.02 0.03 0.08 Nonperforming Assets to Total Loans Plus Foreclosed Assets (1) . 0.03 0.03 0.02 0.03 0.13 (1) Nonperforming assets are defined as nonaccrual loans and loans greater than 90 days past due still accruing plus foreclosed assets. There were no loans greater than 90 days past due still accruing for any period shown. The balance of nonperforming assets can fluctuate due to changes in economic conditions. The Company has established a policy to discontinue accruing interest on a loan (that is, place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. If management believes that a loan will not be collected in full, an increase to the allowance for loan losses is recorded to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal. There are not any loans, outside of those included in the tables above, that cause management to have serious doubts as to the ability of borrowers to comply with present repayment terms. Due to the low levels of nonaccrual loans, gross income that would have been recorded on nonaccrual loans during the years ended December 31, 2021 and December 31, 2020 was $20,000 and $27,000, respectively. Allowance for Loan Losses The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The Company maintains an allowance for loan losses at a level management considers adequate to provide for known and probable incurred losses in the portfolio. The level of the allowance is based on management’s evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. Loan charge-offs (i.e., loans judged to be uncollectible) are charged against the reserve and any subsequent recovery is credited to the reserve. The Company analyzes risks within the loan portfolio on a continual basis. A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions, including the economic distress caused by the COVID-19 pandemic, and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly, and as adjustments become necessary, they are recognized in the periods in which they become known. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’ creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to the allowance for loan losses. At December 31, 2021, the allowance for loan losses was $40.0 million, an increase of $5.2 million from $34.8 million at December 31, 2020. Net charge-offs (recoveries) totaled ($29,000) during the year ended December 31, 2021 and $435,000 during the year ended December 31, 2020. The allowance for loan losses as a percentage of total loans was 1.42% at December 31, 2021, compared to 1.50% at December 31, 2020. The allowance for loan losses to total loans, excluding PPP loans, was 1.43% at December 31, 2021, compared to 1.59% at December 31, 2020. 2021 2020 2019 2018

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